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Medicare Officials Expect Beneficiaries, Government to Pay Less for Drug Benefit

AUGUST 9, 2005 -- Citing "robust competition" among companies eager to offer drug coverage to seniors, Medicare officials said Tuesday they expected beneficiaries' monthly premiums as well as the government's cost to provide the benefit to be lower than previously estimated.

Average monthly premiums are expected to be $32.20, about $5 less per month than estimated in the March 2005 Medicare Trustee's Report. In addition, the government is expected to spend about $15 less per month on each beneficiary—a decrease of about 14 percent.

"Lower premiums should make the benefit more attractive to more people," Centers for Medicare and Medicaid Services (CMS) Administrator Mark B. McClellan told reporters during a briefing at Department of Health and Human Services (HHS) headquarters. HHS Secretary Michael O. Leavitt said between 28 to 30 million of Medicare's more than 40 million beneficiaries are expected to enroll, but added "we're building a system to accommodate more."

While the new figures would save the government billions in the first year of the program, McClellan declined to give an aggregate savings number for the cost of the drug benefit over the next decade." We're not making a new forecast of the cost of the drug benefit," McClellan said. That estimate is expected next February when the administration submits its fiscal 2007 budget request.

In February, McClellan said the administration's 10-year net cost of the drug benefit would be "in the neighborhood" of $720 billion. The cost of the Medicare drug legislation (PL 108-173) was central to the 2003 heated debate about overhauling the program because Congress capped the cost at $400 billion over 10 years.

At Tuesday's briefing, McClellan said that a lower than expected "weighted average" among the plan bids helped reduce the premiums and the government's share, as did the plans' ability to negotiate lower prices for drugs and increase the use of generics, which often cost less than their brand name counterparts. McClellan also said that premiums for prescription drug coverage in Medicare Advantage health plans are expected to be lower on average than in stand-alone prescription drug plans.

McClellan also predicted that the approximately 14 million Medicare beneficiaries who qualify for a low-income subsidy will have multiple choices for coverage with plans whose premiums can be paid with the Medicare subsidy. According to CMS, most beneficiaries with limited incomes will also have no deductibles, no gaps in coverage, and only small co-payments for each prescription.

Leavitt, who along with other HHS officials is traveling around the country via bus to discuss the benefit with Medicare beneficiaries, described the effort as a "large scale national conversation" that includes physicians, pharmacists, volunteer organizations, and others who are trying to educate beneficiaries about the program.

Noting that most of the reporters as well as agency staff in the room had seen the Medicare drug benefit unfold on Capitol Hill, "the politics of this are over," Leavitt said. "It's now about implementation."

In other matters, Leavitt and McClellan declined to answer questions about Dr. Sean Tunis, the agency's chief medical officer who was placed on paid administrative leave in April amid allegations that he submitted false documents to Maryland medical authorities and interfered with their investigation into the matter.

In late May, Tunis agreed to a one-year suspension and a $20,000 for submitting falsified documents that stated he had met his requirements for continuing medical education.

"That is a personnel matter that is under review. And when the review is over we'll have more to say," McClellan said. A spokeswoman for the HHS Inspector General's office said the Tunis matter is "under review."

Concerning proposed new conflict-of-interest rules for National Institutes of Health employees, Leavitt said "there may be some ways in which we can make the proposal more efficient and not create an undue administrative effort." The review of those proposed changes will be completed soon, Leavitt said.

An HHS Inspector General report issued last month noted numerous problems with outside activities of senior-level NIH employees, such as 32 percent of approved outside activity requests missing at least one required piece of information, such as an official signature or required form.

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